While Ulta Beauty faced operational challenges in 2020, there was one thing that stuck out to the retailer: the loyalty of its Ultamate Rewards members.
The cosmetics retailer has close to 32 million members in its free rewards program. And those members make up more than 95% of its sales, both online and in store. And 45% of that 95% is made up of its diamond and platinum members, which are consumers that shop the most frequently and spend the most with Ulta. Platinum members spend at least $500 with Ulta per year and Diamond members spend at least $1,200.
“Loyalty is at the heart of our work,” said Kelly Mahoney, vice president, customer marketing at Ulta during a session at the National Retail Federation’s 2021 digital conference.
“Our members are engaged with our brand and love us back with their loyal shopping year after year,” she said.
When the retailer reopened its stores in August 2020 after closing them for a few months during the pandemic, Ulta dedicated the month to its members with extra deals, sales and ways to earn points.
“[Customer loyalty] is a differentiator for us and it’s the basis for how we get to know who our customers are by watching how they interact with us,” Mahoney said.
Ulta’s plan, Mahoney said, is to better personalize its communications with its members so their experience across every touchpoint—online, in store, via social media—is personalized to them.
Part of the way Ulta is personalizing the experience is with its GLAMlab augmented reality feature, which enables shoppers to virtually try makeup at home via their mobile devices. Augmented reality uses a consumer smartphone camera to superimpose makeup looks live on the consumer’s face so she can see, for example, how different shades of lipstick look or virtually try a new mascara. Ulta’s GLAMlab tool had nine times more engagement in 2020 than its previous best most-engaged metric, Mahoney said. GLAMlab launched in 2016.
“Augmented reality has proven to be an important strategic element to how we succeeded in 2020,” she said. “We already had the AR investment in. We amplified the experience in our mobile app and in communications with our customers.”
Ulta also worked to fine-tune the technology with foundation shade-matching tools and plans to continue leaning into augmented reality because its members had such a high engagement with the feature, Mahoney said.
Part of its fine-tuning includes adding a skin analysis tool, which uses augmented reality technology and artificial intelligence to analyze skin care needs and offer personalized product recommendations, Ulta said. The tool also offers consumers skin care routine recommendations and enables them to save analyses to track changes in their skin.
Ulta in store also has added QR codes on select shelf strips that take shoppers directly into the GLAMlab tool when the shopper scans the QR code with her mobile device.
In addition to offering these digital tools, the retailer also is testing one-on-one video consultations across all categories in collaboration with its cosmetics brand partners and our own services team members, the retailer said without revealing more.
Ecommerce and omnichannel stay strong
Despite these efforts, Ulta still experienced the ups and downs of staying afloat in a pandemic, especially as consumers working from home and sheltering in place had fewer occasions to purchase and wear makeup.
“Shopping for beauty looks different,” Mahoney said. “The way people are shopping for beauty has pivoted to wellness and self care. Bath, skin care and hair care have become important categories.”
And more people are shopping online than in stores as a result of new habits developed in 2020. While Ulta reported overall sales decreased 7.8% to $1.55 billion for the third quarter ended Oct. 31, 2020, compared with $1.68 billion in the third quarter 2019, its ecommerce sales grew about 90% year over year.
The retailer expects comparable-store sales for its fourth quarter to fall 12% to 14%, which is similar to declines early in the pandemic. But omnichannel options such as buy online pick up in store remain strong for Ulta. BOPIS accounted for 16% of its ecommerce sales, which is about double the penetration for the third quarter in 2019, the retailer reported.
“Omnichannel members are our most engaged and most productive members, historically spending three times more per year than store-only guests,” said CEO Mary Dillon in an earnings call transcribed by Seeking Alpha.
In the third quarter, omnichannel shoppers consisted of about 22% of the total Ultamate members, compared with about 12% in the third quarter last year.
“Starting with our continued focus on building the capabilities to win in an omnichannel world, we are committed to meeting guests wherever they want to shop,” Dillon said.
Ulta ended the third quarter with 31.7 million active members in its Ultamate Rewards program, which was about flat compared with the second quarter. However, the number of active members is down about 6% compared with the third quarter 2019.
“We do calculate loyalty—the number of our loyalty program over rolling 12 months,” said president Dave Kimbell on the earning call. “And so as each month goes by, we are still lapping a pre-COVID period through this—through the next several months.”
Ulta is pushing ahead with expansion plans, with an estimate of 30 new stores both this fiscal year and next to add to its 1,262 stores. The cosmetics retailer last month announced plans to open more than 100 mini-stores in Target Corp. locations beginning in 2021.
Ultamate members that shop at Ulta at Target will be able to earn Ultamate Rewards loyalty points, as well as Target loyalty points and then redeem their Ultamate Rewards points at Ulta. Shoppers who are not members are also able to sign up for Ultamate Rewards at Target.
“We think [earning and redeeming rewards points is] a critical part as we think about the way to really create the win, win, win, I’d say, for guests and for Ulta Beauty and for Target,” Dillon said.
Ulta is No. 67 in the 2020 Digital Commerce 360 Top 1000.Favorite